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SBI pulls out trump card, hopes to take credit for plastic smiles

State Bank of India, India's largest commercial bank with 8,873 branches and an asset base of over Rs 1.8 trillion, is planning to launch its credit card, christened SBI Card, in Bombay and other metros in November. The card has already been released in New Delhi on October 15.

SBI Chairman Maya Shankar Verma said the joint venture with GE Capital -- which will handle SBI's credit card business -- aims at roping in three million card-holders by the end of 2001. SBI plans to issue at least 50,000 cards by the end of fiscal 1999.

"Since the bank has over 70 million accounts and over 2.5 million clients in the personal loan segment alone, it might not be difficult to build up a large base over the next couple of years. After all, credit card is a volume-driven business and the bank can use its large client base to expand the market," a senior analyst said.

At the moment, the size of the Mastercard and Visa card business in India is confined to about 2.5 million card-holders which is estimated to shoot up to 12 million by 2000. The figure does not include the co-branded cards launched by various public sector banks and charge cards.

Citibank is the market leader with its share of nearly one million card-holders, followed by Standard Chartered with less than half-a-million card-holders and Hongkong Bank. The list of players include ANZ Grindlays and public sector Indian banks like Bank of Baroda, Central Bank, Canara Bank, Andhra Bank and Bank of India.

Comparatively, the charge card segment is even smaller. Senior bankers said once the rupee becomes fully convertible, the credit card business in India will grow by leaps and bounds as traveller cheques will then become outdated. The Reserve Bank of India has started relaxing norms on credit card use in certain segments, they added.

The SBI Card will provide the bank with a vehicle to enlarge the personal banking segment, Verma said. In the offing are several deposit products which will ride piggyback on the card. "Apart from getting into a new business area, the concurrent objective of the joint venture is to promote the plastic money culture in the country," he said.

SBI hopes to storm the credit card market by competitively pricing its Visa Classic card. The bank is charging an entry fee of Rs 250 for the product while the annual fee is pegged at Rs 500. At this rate, the SBI Card is undercutting the market leader Citibank, which charges Rs 750 as annual fee for its Classic card as well as StanChart which charges Rs 700. The annual fee charged by Hongkong Bank for its Classic card is, however, pegged at Rs 500.

The entry fee charged by foreign banks for their classic cards varies between Rs 100 and Rs 300. Existing Indian players in the market -- Bank of India, Bank of Baroda, Canara Bank, Andhra Bank and Central Bank -- have pegged their charges at the lower end.

SBI will, like many other banks, offer up to 50 days of interest-free credit on purchases made through its card. The credit limit it offers will be in the range of 15 to 20 per cent of the annual income of the client.

The unique selling point of the SBI Card will be its facility for cash withdrawal at 13,000 branches of SBI and its associates across the country. Initially, however, this facility will be offered only at select branches.

The cash withdrawal facility will eventually be available at all branches even if they are not computerised as SBI Cards & Payment Services Limited, the marketing outfit, will set up call centres across the country. SBI holds a 60 per cent sake in SCPSPL while GE Caps, the bank's partner in the credit card venture, holds 60 per cent stake in the processing outfit, GE Capital Business & Processing Management Services Private Limited.

Both the companies are based in Delhi. Vishal Pandit heads the marketing outfit while Samir Vakil has joined as the CEO of the processing company.

The cash advance facility against the credit card will be available at a stiff price. For every cash withdrawal, a cash advance fee of 2.25 per cent of the cash withdrawal amount or Rs 50 -- whichever is higher -- will be charged on the monthly statement in addition to a 2.5 per cent interest on the amount drawn from the date of transaction to the date of settlement.

It offers all the regular features offered by cards in a comparable segment such as lost card protection (where the maximum liability has been pegged at Rs 1,000) and free accident insurance cover for loss of life and easy cash access which will be provided from designated SBI branches. The bank will offer card-holders personal insurance coverage of Rs 200,000 on fatal accidents. In case of loss of life in an air crash, the amount will be Rs 400,000.

At the first stage, the project team-members had successfully tested the card. At the second stage, about 300 senior SBI executives were given the card for trial use. Subsequently, 13 local head offices and 55 zonal offices will be involved in selling cards, and in the last lap the bank will hit district headquarters with the product.

Foreign banks are, however, not alarmed by the entry of SBI into the card business. "The SBI will not eat into our business. It's true that it will expand the plastic money business beyond imagination. But we don't see serious competition," said executives of major foreign banks.

However, an internal SBI survey suggests that many existing card customers may switch to SBI for the sake of business convenience. The bank plans to launch its gold card in fiscal 2000 and follow it up with a debt card and smartcard in quick succession.

Senior analysts said, the entry of SBI in the credit card business will add width and depth to the sector which will expand geographically. It may also trigger a rate war with foreign banks cutting the entry fee and annual charges.

While the largest branch network is considered to be the bank's USP in the credit card business, analysts have expressed doubts on the SBI's ability to manage the show efficiently, given the public sector culture.

"Revolving credit is an unsecured loan and any slackness in processing will lead to mounting non-performing assets. Higher NPAs can simply kill the credit card business. This is one of the major reason behind the poor performance of the public sector banks in the credit card business in India," an analyst said.